The $100 Billion Question

Facebook was not created to turn a profit, founder Mark Zuckerberg famously said, but rather to promote a social ideal: making the world more “open and connected.” And yet, as the social-networking force prepares for the largest Internet IPO in history (expected to happen May 18), analysts predict its market value could rocket past $100 billion–or roughly 100 times its 2011 profits. The challenge: Zuckerberg may have to start minding his bottom line without alienating users. “Investors could lose patience if Facebook’s mission comes at the expense of growing revenues,” warns Michael Pachter, an analyst at the investment firm Wedbush Securities. Users, meanwhile, could lose patience if Facebook becomes too greedy and clogs the site with ads.

To appease both, experts say Facebook should do what it’s done best: innovate–across all kinds of sectors and in pursuit of a variety of initiatives. It also helps to neutralize potential threats, like the photo-sharing service Instagram, which it snapped up in April for $1 billion.

Just keep in mind that Facebook is not a democracy. Zuckerberg controls the voting shares–and the strategy. Still want in? Casual investors can apply to get a piece of the action through online retail brokerage E-Trade, where shares are expected to start at about $30.

Help You Buy Stuff

Facebook’s 1 billion users already input their real names, hometowns and often phone numbers. By securing credit-card information as well, the social-networking titan could offer a “passport” for the Internet, allowing users to make e-purchases much as they do with PayPal.

Become a Search Engine

Google may field the lion’s share of Web queries, but Facebook–whose users post more than 300,000 status updates every minute–is poised, along with Twitter, to dominate real-time social search if it can build the right interface.

Sell Virtual Goods

All those FarmVille plant purchases are adding up–fast. Virtual payments were roughly one-fifth of Facebook’s 2011 revenue, up a whopping 100% from the prior year, thanks largely to Zynga’s berpopular gaming apps (Mafia Wars, CityVille). That number is poised to rise even higher, especially as Facebook continues to develop its virtual Credits currency.

Show More Ads

Targeted ads–think pitching Red Bull to college kids–are Facebook’s primary revenue source, making up 83% of the $3.7 billion it racked up last year. And there’s plenty of room to grow beyond its current ad model, which doesn’t fully exploit how much it knows about what users like.

Go Mobile–With a Vengeance

With more than 550,000 mobile users, Facebook is the most downloaded app on Apple’s iPhone, among other platforms. To build momentum, engineers will keep toying with location-aware shopping deals, and Facebook will reportedly introduce its own branded phone in 2013.

Play by (Some of) the Rules

Facebook has a rocky history with privacy. But as part of its recent settlement with the Federal Trade Commission, the company is subject to privacy audits, meaning that if Zuckerberg and Co. play fast and loose with user information or issue misleading privacy policies (which happened in 2007 and 2009, respectively), the company faces hefty sanctions.

Keep the Cool Factor

Web services are notoriously “unsticky,” meaning users jump fast for the Next Big Thing. (Remember AOL, Friendster and Myspace?) To buck that unfriendly trend, Facebook needs to introduce fun, surprising new features–like Timeline–and “maintain its broad appeal as the place where all of your friends are,” says Wedbush Securities’ Pachter.